DISCUSSION OF OPERATING RESULTS
Net income was $59.9 million or $1.24 per diluted share for the first nine months of 2009 compared to net income of $165.9 million or $3.31 per diluted share for the first nine months of 2008. The 2009 results include after tax unrealized losses of $18.5 million or $0.38 per diluted share related to certain interest rate swaps at GATX's AAE Cargo A.G. affiliate (AAE). Results for the first nine months of 2008 include $26.4 million or $0.52 per diluted share in aggregate after tax income from the reversal of an income tax accrual, a gain on the sale of real estate and the reversal of environmental reserves, both in Europe, and net unrealized gains related to AAE interest rate swaps.
Net income was $19.6 million or $0.42 per diluted share for the third quarter of 2009 compared to net income of $73.9 million or $1.46 per diluted share for the third quarter of 2008. Third quarter 2008 results include after tax income of $24.4 million or $0.48 per diluted share in income from a gain on the sale of real estate and the reversal of environmental reserves as well as unrealized gains from AAE interest rate swaps.
Total investment volume was $376.5 million for the first nine months of 2009 compared to $444.8 million for the first nine months of 2008.
The following table presents a financial summary of GATX's operating segments (in millions, except per share data):

                                                      Three Months Ended                Nine Months Ended
                                                         September 30                     September 30
                                                     2009             2008            2009            2008
Gross Income
Rail                                              $    226.2         $ 277.1        $  676.6        $   778.1
Specialty                                               28.4            47.5            88.8            131.1
ASC                                                     37.3            99.5            78.8            203.9

Total segment gross income                             291.9           424.1           844.2          1,113.1
Other income                                             0.2            (3.6 )           1.0             (3.2 )

Consolidated Gross Income                              292.1           420.5           845.2          1,109.9


Segment Profit
Rail                                                    47.8           106.3           135.2            250.4
Specialty                                               13.2            31.9            43.5             92.4
ASC                                                      1.3            13.9            10.1             19.8

Total Segment Profit                                    62.3           152.1           188.8            362.6
Less:
Selling, general and administrative expenses            35.0            48.1           102.1            129.1
Unallocated interest expense, net                        0.6             0.3             3.0              2.7
Other, including eliminations                           (0.2 )           3.6            (2.4 )            3.5
Income taxes                                             7.3            26.2            26.2             61.4

Net Income                                        $     19.6         $  73.9        $   59.9        $   165.9


Basic earnings per share                          $     0.43         $  1.52        $   1.28        $    3.51
Diluted earnings per share                        $     0.42         $  1.46        $   1.24        $    3.31

Return on Equity
GATX's return on equity ("ROE") is shown for the trailing twelve months ended September 30:

2009 2008 ROE 7.4 % 17.5 %

Segment Operations
Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performance of each segment in a given period. Segment profit includes all revenues and affiliates' earnings attributable to the segments, as well as ownership costs and other costs that management believes are directly associated with the maintenance or operation of the revenue earning assets. Other costs and expenses include, but are not limited to, maintenance, marine operating costs, asset impairment charges, litigation, provisions for losses, environmental costs and asset storage costs. Segment profit excludes selling, general and administrative expenses, income taxes and certain other amounts not allocated to the segments. These amounts are discussed below in Other.
GATX allocates debt balances and related interest expense to each segment based upon a pre-determined, fixed recourse leverage level expressed as a ratio of recourse debt (including off balance sheet debt) to equity. The leverage levels for Rail, Specialty and ASC are set at 4:1, 3:1 and 1.5:1, respectively. Management believes that by utilizing this leverage and interest expense allocation methodology, each operating segment's financial performance reflects appropriate risk-adjusted borrowing costs.

Components of Rail's operating results are outlined below (in millions):

                                     Three Months Ended          Nine Months Ended
                                        September 30                September 30
                                      2009          2008          2009         2008
        Gross Income
        Lease income               $    208.8      $ 218.5     $    634.3     $ 658.5
        Asset remarketing income          0.2          8.5           11.4        21.7
        Other income                     13.6         35.9           39.7        78.8

        Revenues                        222.6        262.9          685.4       759.0
        Affiliates' earnings              3.6         14.2           (8.8 )      19.1

                                        226.2        277.1          676.6       778.1

        Ownership Costs
        Depreciation                     47.4         45.9          141.0       135.7
        Interest expense, net            30.6         28.4           95.7        84.8
        Operating lease expense          34.0         34.7          100.9       109.7

                                        112.0        109.0          337.6       330.2

        Other Costs and Expenses
        Maintenance expense              61.0         60.0          185.1       182.0
        Other                             5.4          1.8           18.7        15.5

                                         66.4         61.8          203.8       197.5

        Segment profit             $     47.8      $ 106.3     $    135.2     $ 250.4

GATX Lease Price Index
The LPI is an internally generated business indicator that measures general lease rate pricing on renewals within Rail's North American fleet. The index reflects the weighted average lease rate for a select group of railcar types that GATX believes to be representative of its overall North American fleet. The LPI measures the percentage change between the weighted average expiring lease rate and the weighted average renewal lease rate. Average renewal term reflects the weighted average renewal lease term in months.

Rail's Fleet Data
   The following table summarizes fleet activity for Rail's North American
railcars for the quarters indicated:

                                        September 30          December 31          March 31            June 30           September 30
                                            2008                 2008                2009               2009                 2009

Beginning balance                           110,195              109,874            112,976            112,326               111,154
Cars added                                    1,535                4,411                354                711                 1,478
Cars scrapped                                (1,078 )               (970 )             (855 )           (1,056 )              (1,302 )
Cars sold                                      (778 )               (339 )             (149 )             (827 )                (124 )

Ending balance                              109,874              112,976            112,326            111,154               111,206
Utilization rate at quarter end                97.8 %               97.9 %             96.5 %             96.0 %                95.9 %

[[Image Removed: (BAR CHART)]] The following table summarizes fleet activity for Rail's European railcars for the quarters indicated:

                                       September 30          December 31          March 31          June 30          September 30
                                           2008                 2008                2009              2009               2009

Beginning balance                           19,507               19,583            19,724            19,886               20,000
Cars added                                     135                  144               190               124                   91
Cars scrapped or sold                          (59 )                 (3 )             (28 )             (10 )                (86 )

Ending balance                              19,583               19,724            19,886            20,000               20,005
Utilization rate at quarter end               97.6 %               97.1 %            96.5 %            95.6 %               94.7 %

[[Image Removed: (BAR CHART)]]

The following table summarizes Rail's average active cars for the three and nine months ended September 30:

                                Three Months Ended           Nine Months Ended
                                   September 30                September 30
                                2009          2008          2009          2008
             North America     106,136       107,565       107,867       108,502
             Europe             19,045        19,074        19,104        19,009

Rail's Lease Income
   Components of Rail's lease income for the three and nine months ended
September 30 are outlined below (in millions):

                                Three Months Ended          Nine Months Ended
                                   September 30                September 30
                                 2009          2008          2009         2008
              North America   $    164.2      $ 169.4     $    506.2     $ 513.0
              Europe                36.6         40.3          104.0       119.5
              Locomotives            8.0          8.8           24.1        26.0

                              $    208.8      $ 218.5     $    634.3     $ 658.5

Comparison of the First Nine Months of 2009 to the First Nine Months of 2008 Segment Profit
Rail's segment profit in 2009 was impacted by $22.0 million of unrealized losses due to changes in the fair value of certain interest rate swaps at AAE. Segment profit in 2008 reflected a $12.0 million gain on the sale of an office building and the reversal of $8.2 million of reserves due to the settlement of an environmental liability, both in Europe, and a $3.7 million unrealized gain on the interest rate swaps at AAE. Excluding these items, Rail's segment profit decreased $69.3 million, primarily due to lower lease, scrapping and asset remarketing income.
Gross Income
Lease income in North America decreased $6.8 million, primarily due to fewer cars on lease and $5.2 million of reduced rents on restructured leases resulting from customer bankruptcies and non-performing leases. These items were partially offset by higher lease rates on leases renewed in the prior year. On average during the first nine months of 2009, there were approximately 600 fewer railcars on lease as compared to the first nine months of 2008, primarily due to lease-end returns. The current year includes 3,650 active cars that were acquired in December 2008 from Allco Finance Group Limited ("Allco"), largely offsetting the impact of lease-end returns on 2009 lease income. In Europe, a $15.5 million decrease in lease income was driven by the unfavorable foreign exchange effects of a stronger U.S. Dollar and was partially offset by higher lease rates and an average of 95 more cars on lease. Asset remarketing income decreased $10.3 million due to fewer asset sales in the current period. Other income was $39.1 million lower, primarily due to lower scrap income (driven by significantly lower steel prices), a $12.0 million gain on the sale of an office building recorded in 2008 and the receipt in the prior year of a lease termination fee. Affiliates' earnings were lower due to the $22.0 million unrealized loss at AAE compared to the $3.7 million unrealized gain in 2008. Excluding the unrealized loss and gain, 2009 affiliates' earnings were lower primarily due to a casualty gain recognized by an affiliate in the prior year and lower operating results at AAE due to fewer cars on lease.
AAE holds multiple derivative instruments to hedge interest rate risk associated with forecasted floating rate debt issuances. These instruments do not qualify for hedge accounting and as a result, changes in their fair values are recognized currently in income. The unrealized loss recognized in 2009 was primarily driven by the significant decline in benchmark interest rates. AAE's earnings may be impacted by future unrealized gains or losses associated with these instruments.
Ownership Costs
Ownership costs increased $7.4 million, net of a $7.0 million reduction due to the favorable foreign exchange effects of a stronger U.S. Dollar. The increase in ownership costs was largely driven by interest and depreciation expense associated with investment volume over the last 12 months, particularly the acquisition of the Allco fleet. The mix of ownership costs was

impacted by the sale and lease-back of railcars in 2009 and the purchases of previously leased-in railcars in 2009 and 2008. Other Costs and Expenses
In North America, maintenance costs increased $12.2 million, largely due to higher car volumes, increased lessee turnover activity and increased repairs performed by railroads. In Europe, maintenance costs were $9.1 million lower, primarily due to the favorable foreign exchange effects of a stronger U.S. Dollar and the receipt of a manufacturer's reimbursement for the cost of certain warranty repairs performed by GATX.
Other in 2009 included a $2.8 million insurance recovery related to a fire at a GATX repair facility in Europe, a $6.9 million reversal of provision for losses and a $4.8 million asset impairment charge. Both the provision reversal and impairment were recorded in connection with the restructuring of leases with a customer who had declared bankruptcy. Other in 2008 included the aforementioned reversal of $8.2 million of environmental reserves. Excluding these items, Other in 2009 was comparable to the prior year. Comparison of the Third Quarter 2009 to the Third Quarter 2008 Segment Profit
Rail's segment profit for the third quarter of 2008 reflected a $12.0 million gain on the sale of an office building and the reversal of $8.2 million of reserves due to the settlement of an environmental liability, both in Europe, and a $9.2 million unrealized gain on interest rate swaps at AAE. Excluding these items, Rail's segment profit decreased $29.1 million in the third quarter of 2009, primarily due to lower lease, scrapping and asset remarketing income. Gross Income
Lease income in North America decreased $5.2 million, primarily due to fewer cars on lease and $2.5 million of reduced rents on restructured leases resulting from customer bankruptcies. On average during the third quarter of 2009, there were approximately 1,400 fewer railcars on lease as compared to the third quarter of 2008, primarily due to lease-end returns. The current year includes 3,650 active cars that were acquired in December 2008 from Allco, largely offsetting the impact of lease-end returns on 2009 lease income. In Europe, a $3.7 million decrease in lease income due to the unfavorable foreign exchange effects of a stronger U.S. Dollar was partially offset by higher renewal rates in 2009. Asset remarketing income decreased $8.3 million due to fewer asset sales in the current period. Other income was $22.3 million lower, primarily due to lower scrap income largely resulting from significantly lower steel prices and a $12.0 million gain on the sale of an office building recorded in 2008. Affiliates' earnings were lower due to a $9.2 million unrealized gain recorded by AAE in 2008. Excluding the unrealized gain, 2009 affiliates' earnings were lower primarily due to a casualty gain recognized by an affiliate in the prior year, unfavorable foreign exchange and lower operating results at AAE due to fewer cars on lease.
Ownership Costs
Ownership costs increased $3.0 million, primarily due to interest and depreciation associated with investment volume over the last 12 months, particularly the acquisition of the Allco fleet. The mix of ownership costs was impacted by the sale and lease-back of railcars in 2009 and the purchases of previously leased-in railcars in 2009 and 2008. Other Costs and Expenses
In North America, maintenance costs were $1.8 million higher largely due to base fleet maintenance due to increased lessee turnover and higher regulatory compliance costs. In Europe, maintenance costs were $0.8 million lower, primarily due to the favorable foreign exchange effects of a stronger U.S. Dollar, partially offset by higher repair and revision expenses.
Other increased $3.6 million, primarily due to the reversal of $8.2 million of reserves in 2008 resulting from the settlement of an environmental liability in Europe, partially offset by a $2.8 million insurance recovery related to a GATX repair facility in Europe and a $1.2 million reversal of bad debt provision in the current period.

Rail Regulatory Update
Rules Affecting TIH Cars. On January 13, 2009, the U.S. Pipeline and Hazardous Materials Safety Administration, in coordination with the Federal Railroad Administration ("FRA") issued final interim rules (the "FRA Interim Rules") that, among other things, establish new interim design standards for pressurized tank cars that transport toxic-by-inhalation hazardous materials ("TIH cars"). The designation "final interim" indicates that the FRA intends to continue to research enhanced design standards for TIH cars and will issue additional rulemaking in the future that will prescribe final design requirements. Under the FRA Interim Rules, TIH cars manufactured after the effective date of the rules must be built to a higher pressure class rating relative to U.S Department of Transportation specifications for tank cars. Unlike the original version of the rules proposed in April 2008, the FRA Interim Rules as adopted do not include a retirement schedule for TIH cars manufactured prior to effective date of the rules. However, the FRA Interim Rules require that existing TIH cars receive appropriate certification from the Association of American Railroads ("AAR") in order to remain in TIH service. The certification requirements are currently being developed by the AAR and, depending on the final certification requirements adopted, it is possible that some existing TIH cars will need to be removed from TIH service. Until these certification procedures are finalized, GATX cannot reasonably conclude precisely what impact, if any, the FRA Interim Rules may have on GATX's tank car fleet. Once final certification standards are adopted, GATX will evaluate the technical requirements of the final design standards to determine the effect on its fleet.
As of September 30, 2009, approximately 2,100 TIH cars remained in service in GATX's fleet (approximately 1.9% of its North American fleet) and, based upon management's review, GATX does not expect that the FRA Interim Rules will have a material impact on the Company's financial position or results of operations.
European Regulatory Developments. An immaterial number of railcars owned by GATX Rail Austria GmbH (an indirect subsidiary of the Company, "GATX Rail Austria") and its subsidiaries, have been affected by restrictions on their movement imposed by the Italian rail safety authorities. Similar restrictions on movement of these cars imposed by the French rail safety authorities were lifted . . .